Even though you’re busy thinking about lodging your FY18 return there’s no better time to also start preparing for next year’s tax return. It could save you time, stress and help you land a better tax position in the future. If you’re currently scrambling to pull together your business transactions or have been scratching your head trying to determine the best way to maximise your refund, the following six tips will help you prepare for the coming year (and may come in handy immediately too).
So, grab a warm drink of your choice and get your tax affairs in order now, with my tips below:
1. Get your documentation sorted
Track all the details of all your expenses
Documenting what, when and where your expenses were incurred will make tax time a breeze. It’s important to keep details of how you paid (cash, card or direct bank transfer), the receipts (physical or digital copies), the amount and the purpose of the expense.
Hold on to all receipts that relate to business expenses – and keep them organised. If you’re registered for GST and are required to lodge a BAS, your receipts or invoices will either break out the GST and net expense amount or tell you if GST was included in the expense making it easy to see what you can claim.
In terms of storage, shoe boxes might be simple but they’re not necessarily a reliable way to store and track receipts. If you’re just getting started, photographing and storing receipts and other documents in a separate folder in your smartphone may work for you. Alternatively, apps like QuickBooks Self-Employed offer a simple way to store your receipts with your transactions. And yes, it is completely fine to maintain a digital only record of your receipts/invoices.
Separate your Business from your Personal expenses
Separating your business and your personal transactions will give you ongoing visibility of your cash position throughout the year and make tax time a breeze. Tools such as QuickBooks Self-Employed make it easy to separate your business expenses if you are using a personal bank account, or if your business is more established you can open a dedicated business account. In addition, you might like to put aside a proportion of your earnings every month to ensure you have cash available to cover your tax bill when it arrives. Trust me, no one wants to dip into their holiday or other savings to cover their tax bill!
2. Select a tax lodgement option that suits you
There’s essentially two ways to lodge your tax:
- Using an accountant who’ll lodge on your behalf
- Do-it-yourself via an online tax lodgement service
Your circumstances may change over time, so it’s a smart idea to re-assess your situation and needs every now and again.
Many Australians trust their local accountant with their tax affairs. Having someone to speak to in person adds a level of trust and security.
If you’re a sole trader or small business owner, you’ll be judging many hats and having to consciously manage your time effectively. In such situations, it may be a hassle to fit in an appointment with your accountant. As an alternative, there are a number of online lodgement services you can save time and stress, allowing you to DIY your tax in your own time.
In terms of DIY tools, the Australian Taxation Office’s (ATO) myGov allows you to lodge for free, or if you’re seeking additional support other options such as Airtax allow you to contact an accountant if you need, access to user friendly templates and prompts for you to claim deductions you might not have thought of. This may get you a better tax outcome in the end. So… sometimes it pays to pay!
Also, in case you weren’t aware, the fees you pay to lodge your tax return with an accountant or using an online tool are deductible as a tax agent fee the following year.
3. Lodge before the due date
Remember your school days, when you’d lose marks from your assignment if you handed it in late? Well, the ATO acts in a similar way so it’s a good idea to keep an eye on tax lodgement dates to avoid late penalties. Regular (usually monthly or quarterly) BAS lodgements are required if you’re registered for GST and an annual income tax return is a requirement of almost all Australian citizens and permanent residents.
Income tax returns deadlines catch some people out – there’s a few myths out there about deadlines so make sure you know what’s what. Clued-up accountants or digital apps like Airtax can make sure you don’t miss a deadline. Make sure you check out the notification options or ask your accountant if they can provide you reminders for lodgement dates.
4. Don’t miss out on unclaimed expenses
Many Australians miss out on hundreds of thousands of dollars of tax savings because they’re unaware of all the expenses they can claim as a deduction to their taxable income. A simple way to think of it is – if you’ve paid for it, and it is business related (either entirely or in part), then you might be able to claim it.
To help you out, we’ve listed some of the most underclaimed expenses which you might want to consider claiming if you’ve incurred them in relation to your business activities.
- Home office expenses
- Accounting fees
- Tools and equipment
- Buying and cleaning occupation-specific or protective clothing
- Books, periodicals and subscriptions related to your business
- Business travel
- Professional membership fees
- Relevant seminars, conferences and training courses
- Income protection insurance
- Software or technical hardware
5. Don’t put car expenses in the ‘too hard basket’
A lot of people don’t claim car expenses for the simple reason that they believe it’s too tricky to determine and claim! If you take the time to sort it out, it could mean more money back in your pocket. You can claim $660 for every 1,000km (up to 5,000km) of business mileage in your car before 1 July, 2018, and $720 after that date.
The beginning of a new financial year is the ideal time to set yourself up with a system that works for you to make claiming your car expense easy at the end of the year. You can learn more about the different ways to track your car expenses, plus hacks such as QuickBooks Self Employed GPS feature in your smartphone allowing you to automatically track your mileage. For some, car expenses are significant, so it’s worth doing properly to make sure you’re not missing out.
6. Do a health check for your tax
Tax is complicated and whether your circumstances have changed or you’ve been doing it alone for sometime, it’s a good idea to book in for a tax health check. In the case that tax legislation has changed, or you’re completing a calculation incorrectly and not realising it, a tax advisor can talk you through your circumstances to make sure you’re not missing out on anything. A simple option to undertake a tax health check – you can talk to your accountant about this or you might like to try Airtax Tax Companion service – you’ll be put in contact with a certified PwC accountant who will review your tax affairs and ensure you’re properly set up. I hope I’ve been able to inspire you to take action and invest some time now to get yourself set up correctly for the current and future tax periods.